Germany’s cabinet has approved a substantial tax relief package aimed at stimulating the country’s sluggish economy. The package, part of a wider 2025 budget agreement, will provide €20.9 billion in annual tax relief, up from the previously planned €12.8 billion. The move is designed to incentivize investment and support households.
The plan includes extending a scheme that allows companies to depreciate assets faster, encouraging investment and boosting economic activity. Research and development tax incentives will also be extended. For households, the tax-free allowance on the lowest income tax bracket will be raised by €300, while income tax brackets will be adjusted for inflation, and child benefit will increase.
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The government is hoping that the tax relief package will contribute to an economic growth boost of over 0.5% in 2025. However, economists are expressing doubts about the package’s effectiveness. The tax relief is expected to create a significant revenue shortfall, with states and municipalities expected to bear the brunt of the burden.
The package still requires approval from both houses of parliament, which could prove challenging due to concerns from states and municipalities about the funding shortfall.